On November 15 the airline opened a route to Las Vegas and is going for Bogotá. It has the second biggest profit margin of all the region’s airlines. How it captured 25% of the Mexican market in just seven years. Interview with José Luis Garza, general director of Interjet.
On 15 November the airline Interjet will make its inaugural flight to Los Vegas in the United States, José Luis Garza, the company’s General Director, told Latin Business Chronicle (LBC). Last year it started flying to Guatemala, Havana, San José and to San Antonio, Miami, New York and Orange County in the United States. Now it’s in negotiations to go to Bogotá and plans to open new routes in the Caribbean.
With those new routes Interjet will have consolidated its international operations almost as quickly as its expansion within Mexico. From its incorporation seven years ago, Interjet has gone from zero to 25% of the market share of the domestic flights market in Mexico.
Interjet is a privately-held company and its numbers are not well known. However, the airline’s director told LBC that the company operates with the second highest margin in Latin America after the Panamanian airline Copa.
How they do it
Interjet’s formula for success looks a lot like that of a low-cost airline, but it has features that put it in a slightly different category.
Low-cost airlines have a list of practices that help them maintain tight discipline in their operations. Some of these are: using equipment from the same manufacturer; using a distribution network that supports direct sales by internet; operating with a flat and very informal management system; making sure the automated processes maximize employee productivity; and flying from point to point without stopovers.
Interjet follows all of those principals. For example its aircraft are all the same model (Airbus A320), but they are also identical in details such as the landing gear and their electronic equipment.
However, they change some of these rules. One of these is outsourcing. Low-cost airlines outsource much of their labor to maintain efficiency. Nevertheless, at Interjet they found that they could realize important savings if they carry out themselves the heavy maintenance, ground management and training. To do this they have their own maintenance center, take care of all the airport administration for flights and passengers, and train their pilots in Toluca.
They have also included elements of quality in service that approach the standards which Mexican travellers have become accustomed to. They have just one class, a strategy inspired by JetBlue; they take out seats so they can offer their passengers more legroom and avoid the problem of “flying empty seats all the time,” says Garza.
They convinced Pepsico and other drinks and snacks manufacturers to give passengers their products free of charge, as a way of promoting brand recognition. “It’s the ideal segment for some of our suppliers,” he said. “That’s why they offer their products at zero cost and we pass the savings on to our customers.”
In Mexico you have to offer a higher-quality service than the usual at low-cost airlines, without charging the customers more money. “We keep production costs low so that we can provide such a service,” said the Interjet Director.
The strategy has yielded incredible results. The company that began its operation in December 2005 with 3 Airbus, today has 35. Two more arrived in November and 4 others are expected next year.
In March the company will get 10 Russian Sukhoi Superjet 100 and another 10 over 2013. “A reason for ordering Superjets is wider cabins,” he said. The company will use these aircrafts in domestic routes. Another reason is cost. The deal is valued at US$700 million.
At Interjet they believe the explosive growth isn’t a matter of luck but the result of an entrepreneurial design which Garza says is an exercise in reverse engineering.
Interjet knew the financial statements and the strategies of Mexicana and Aeromexico as they went to their data room when they were being offered for privatization. At that time they decided not to buy. “They weren’t worth much,” says José Luis Garza. “They had more problems than opportunities. Their great strength was their market share, but they were plagued with inefficiencies in all areas.”
José Luis Garza thinks there will be more mergers In Latin aviation. In Mexico four airlines have 95% of the market. Even at that, he thinks there will be more consolidation, leaving two major airlines and a low-cost one. In South America he expects the two big airlines Lantam and Avianca to endure and Copa to remain independent in Central America.
What seems a certainty is that no matter what happens on this front, Interjet will be one of the important players in the coming decade.